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The stock market put in the best one-month performance in the last 70 years.... go figure...???
Last month may have turned out to be a September to remember but will October be a month we will want to forget?
What moved the markets? Consumer Sentiment ended September at 68.2 and that was a significant improvement over the mid month reading at 66.6. That suggests sentiment improved as the month progressed. The big report for Friday was the national ISM or Purchasing Managers Index. The ISM declined to 54.4 in September from 56.3 in August. This is still in expansion territory but it was the fourth decline in five months and the lowest level since November. An interesting highlight of the ISM was the sharp rise in the prices paid component from 61.5 to 70.5. This is the highest level since May and suggests the rising cost of commodities is starting to show up at the producer level. This could be an early warning sign of future inflation. The Purchasing Managers Index (PMI) of China's manufacturing sector rose to 53.8 per cent in September, a relief that global growth was not slowing down.
However, the Big Kahuna coming up Friday is the Nonfarm Payrolls Report. The current estimates from Moody's is for total employment to have risen by 5,000 jobs in September. They believe private employment has risen by 90,000 but government terminations will approach 85,000 jobs. Census employment declined by an estimated 77,917 in the September period. The upcoming week always marks the beginning of the Q3 earnings cycle. Alcoa is the first Dow component to report and they will be on Thursday.
The falling U.S. Dollar helped gold break over the $1,300 level also aiding the rest of the commodity sector higher. Oil finally saw some momentum, as Itz has highlighted over the last few posts. With the dollar quickly getting cheaper it takes more dollars to buy hard commodities like gold and oil. Add in some unrest in Nigeria and Ecuador and a couple tropical storms and it was another short squeeze for the bears. With product inventories at 20-year highs it was definitely not a demand driven rally. Itz is cautious, sure EIA had a drop of 500k barrel reported last Wednesday in it's weekly inventory report...granted October is conversion time for refineries to heating oil...still 500k is not much. Let's see what this week brings, Itz Stock Chartz is expecting some resistance at $82.50 level. We've been long ProShares Ultra Crude Oil ETF $UCO, targeting the $11 level near term.
The window dressing is over and now the funds have to make those hard decisions about what to keep for their fiscal year end on October 31st and what to sell. For the upcoming week, expectations are for the markets to be flat to down. The quarter end retirement fund flows will help support prices the first few days but with the payroll report on Friday there will be some caution about adding to long positions.